Document - Public debt in the region has risen to levels not seen in decades
Public debt in the region has risen to levels not seen in decades
The region's ratio of interest payments to revenue, a key metric to assess debt servicing capacity and predict the risk of a fiscal crisis, has more than doubled since the early 2010s and is now close to four times the ratio in advanced economies. As of 2022, more than half of the low-income countries in sub-Saharan Africa were assessed by the IMF to be at high risk or already in debt distress.
A more strategic approach to fiscal policy would be preferable by setting explicit debt targets that integrate key policy trade-offs between debt sustainability and development objectives, rather than focusing narrowly on short-term fiscal deficits. The paper suggests a novel approach to estimating country-specific medium-term debt anchors, which ensures that debt service costs remain manageable.
But not all countries face the same challenge. About a quarter of the region's economies still have some fiscal space and can use it to maintain and even increase vital investments in human and physical capital. On the other hand, a few countries have very large adjustment needs; for them, it is unlikely that fiscal consolidation alone will be enough to ensure fiscal sustainability. It may need to be complemented by debt reprofiling or restructuring.
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